Law Of SupplyGroup Members1. Muhammad SamranBBA.12.o32. Mir Haris Elahi BBA.12.13
Law of SupplyIntroduction:It is observed in markets that when high price ofgoods are offered to sellers. They increase thesupply of those goods and when price level ofthose goods decreases, the seller decreases thesupply of those goods. This behaviour of seller isknown as Law of supply.
Defination:• “Other things remaining same, when price of acommodity increases its quantity supplied increasesand if price of a commodity decreases, quantitysupplied also decreases”.• There exist a positive and direct relationshipbetween price and quantity supplied of acommodity. Following terminologies are used whileexpressing law of supply:• Quantity supplied=Qs• Price=P
Assumptions• Following are assumptions of law of supplywhich are held constant while describing law ofsupply.1. No Change in cost of Production2. No Change in technology3. No Change in climate4. No Change in Price of Substitutes5. No Change in Natural Resources
Explaination• Let,s see this example to understand law ofsupply. Assume that you are a farmer and youare producing wheat. If price of per bushel ofwheat is $1 you will only produce 5 bushels ofwheat, if price increases to $2 you will increaseyour supply to 20 bushels, And if price againincreases to $3 you will produce 35 bushels, Andat $4 you will produce 50 bushels And if priceare at their top i.e $5 then you will produce 60bushels. You can see the table below.
Change in Supply• There are two type of changes in Supply. The one ismovement of supply or extension andcontraction of supply and other is shift insupply.• Movement of supply:Other things remaining same, All change in quantitysupplied resulting from the change in price factor, iscalled the movement of supply. If supply curvemoves on left side then it means that supplydecreases and if curve moves toward right side itshows that supply increases.
• Let consider the above examplewhen price moves from $1 to 2,3,4,5Quantity Supplied increases from5kg to 20,35,50&60Kg this is knownas extension of supply and if we seethis phenomena from reverse sidewhen price is decreasing from 5$ to1$ Quantity supplied is alsodecreasing from 60 to 5Kg. This isknown as Contraction of supply. Letsee it clearly through diagram.
1234501234565 20 35 50 60PriceChart Title
Shift in Supply:• There are many factors that can be a cause ofchange in supply of a commodity while priceremain,s constant. Then change in supply of acommodity due to change in different factors atconstant price is called shift in supply.• If supply curve moves upward it means supplydecreases.• If supply curve moves downward it meanssupply increases
Cases of rise and fall in supply or determinant ofsupply• We assume some factors constant whiledescribing law of supply, those factors areknown as determinants of supply. Some of themare described below.1) Change in factors prices.2) Change in Technology.3) Means of transport andcommunications.4) Scientific Development.
5) Union of Sellers.6) Trade Policy.7) Industrial Expansion.8) Change in price of a Subsitute.
Thanks Every One• For Attending our Presentation.• And a very Special thanks to our Dear ProfessorSyed Zagham Abbas Who Taught us through outthe semester in the easiest way as possible.